ECON 1 Midterm Exam 2
Name_
Prof. Levkoff
Seat#_
Winter 2014
PID#_
Version B Solutions
Date_
Directions: You will have an hour and twenty minutes to complete the exam after
everyone has been seated and the exam distributed. The exam is 10 pages (front and
Supply part 2 11/2/15
1. Two sides of profit maximization
a. Costs how much it costs a firm to produce something
i. Relates to the production technology for the firm
b. Revenue how much a firm can get for selling something
i. Relates to the market structu
Supply Notes 10/7
1. Quantity Supplied Amount that producers supply at a given price
2. Supply the entire relationship between price and quantity supplied
a. Law of Supply All else equal, as price increases, quantity supplied increases
3. Sellers Reservat
Comparative Advantage 9/28/15
1. Opportunity Cost the value of the next best alternative that must be forgone in order
to undertake the activity
a. Opportunity cost is the next best alternative
b. A PPC shows two goods, so one alternative is forgone: some
Demand Notes 10/23/15
1. Key Elements of Consumer Behavior
a. What factors influence how much of a good or service people buy?
i. Price
ii. Income
iii. Preference
b. Three above factors combine to form budget constraint
2. The Budget Constraint
a. Shows t
Demand part 2 10/30/15
1. Price Decrease
a. Change in relative prices (change in slope)
b. Change in size of the affordable set
c. Substitution Effect is driven by change in relative prices (slope)
i. When a price of a good drops, it becomes cheaper relat
Supply and Demand Part 2 Notes 10/9/15
1. Simultaneous shifts in Supply and Demand
a. If supply and demand move in the same direction (both increase or decrease),
then we can make definite predictions about Q* but not P*
b. If supply and demand move in op
Supply and Demand Notes pt 3 and Elasticity 10/12
1. The Social Optimum
a. Social Marginal Benefit (SMB) = Social Marginal Cost (SMC)
i. If SMB > SMC, produce more
ii. If SMB < SMC, produce less
iii. If SMB = SMC, you are at the social optimum
b. Socially
Marginal Utility 10/23/15
1. Indifference Curve: trace out combinations of goods and services among which
consumers are indifferent
a. At any point on the curve there is equal utility
b. Shift up/right greater utility (more is better)
c. Rule 1: Curves ca
Elasticity Part 3 Notes 10/19
1. Other elasticites
a. Income elasticity of demand (Ei)
b. Cross-price elasticity of demand (Exy)
c. Income Elasticity
i. Positive number for normal goods
ii. Negative number for inferior goods
d. Cross-Price Elasticity
i. P
Indifference Curves 10/26/15
1. Indiffernce curves describe preferences
a. People like variety
i. ICs account for this
b. Peoples preferences differ
i. Shown by slope of ICs
2. Extreme Cases
a. Perfect Substitutes: consumer is always willing to give up on
Chapter 6 Video Module
1. Profits (pi) = TR TC
a. TR = total revenue, TC = total cost
b. Total Revenue
i. We will be talking about perfectly competitive market
ii. TR = Price x Quantity = P x Q
c. Total Cost
i. Inputs, referred to as factors of production
ECON 1 Midterm Exam 2
Name_
Prof. Levkoff
Seat#_
Winter 2014
PID#_
Version A Solutions
Date_
Directions: You will have an hour and twenty minutes to complete the exam after
everyone has been seated and the exam distributed. The exam is 10 pages (front and
Supply and Demand Notes 10/5/15
1. Three big questions:
a. What goods and services should be produced?
b. How should we produce them?
c. Who should get them?
2. Different Forms of Economic Organization
a. Command Economies one individual or a small group
